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An economist has warned that SA could end up with the world’s most expensive electricity if Eskom gets its proposed tariff increases.
“SA’s electricity is more expensive than electricity in the US, Israel and Mexico and if Eskom gets its 45% increase every year for three years, SA will have the most expensive electricity in the world,” Mike Schussler told a presentation in Johannesburg entitled “Recovery or Eskom”.
Out of 31 countries or areas, the SA’s household electricity prices were already in the top third of countries. “We keep being told that we have the cheapest electricity in the world and this is not the case. Let’s start calling Eskom’s prices the most expensive in the world and change the public’s mindset.”
From 2005 up to the present, electricity prices had increased 91%, while inflation rose only 35% over the same period.
Schussler said electricity prices were set to increase around 200% over the next five years. “This means that between 2005 and 2014 electricity prices on the current proposal would have increased 633%.”
Schussler noted, however, that income from residential properties and businesses for electricity went not only to Eskom. “Eskom had a revenue of over R53,6bn in the year to March 2009 while municipalities’ gross revenue from electricity was about R32,9bn for the same period.”
That, he said, was a total R86,5bn or around 3,7% of GDP.
The average municipalilty household paid around R365/month in 2008, while Eskom customers paid an average of R124/month. “There are now more than 12,3m electricity accounts in SA. By comparison there are only 1,8m mortgage accounts in SA. This means that the effect of an electricity price hike is felt by 6,7 times more by consumers,” Schussler said.
Turning to why South Africa should have cheaper electricity prices, he noted the country used large quantities of coal and had one of the cheapest sources of coal in the world.
Eskom did not have its costs under control and was passing on its problems to consumers, he said. He pointed out that in one year Eskom’s personnel costs rose 33,6%. “No union member in SA got that sort of increase.”
Better regulation and a better regulator were needed in the energy sector. “We seem to be governed by short-term thinking and not longer-thinking.”
Turning to the effect of electricity prices on consumer price inflation, Schussler said this number would be around 1,2% higher in the first year of Eskom’s proposed tariff increase, 2% higher in the second year and probably the same in the third year.
“There will be little chance of interest rates declining as inflation won’t be close to target. In fact, interest rates may have to rise by up to 2% to help curb second round effects.”
Schussler predicted mining costs might rise as much as 25% in total as a result of doubling energy costs. “And remember that gas production has a 70% electricity input cost.”
Services such as rail transport, pipelines and cold storage could see price rises by as much as 20% over the three years, assuming profit margins remained intact.
“SA’s growth will be constrained by between 1% and 1,5%.”
Schussler explained that before the financial crisis he had put the country’s growth at an average of 3,7% in the next five years. With the crisis he predicted growth of around 2,7% in the next five years.
Now, with “the Eskom effect”, Schussler said the parastatal would take about 1,1% away from that figure so that growth would average only 1,6% in the next five years.
“I think that 2010 will now also be a tough year.”
He expected growth of just over one percent if Eskom got its 45% every year for the next three years. “I think 2011 will be even worse with growth of less than 1%.” — Sapa
To be honest price should not really be an issue. My problem is that we will be producing expensive electricity that is a dirty as a dogs arse. The technology exists for the whole country to be powered sustainably (yes its true) and if dirty coal and nuclear is going to be so expensive, we should ditch that technology altogether. We should also not be subsidizing power hungry industry such as aluminium smelters which do not contribute enough to GDP to warrant their extreme electricity usage. Screw Eskom- go green and everyone will benefit (globally, not just in SA)
I don’t like expensive electricity as much as the next person, but this article is just BS… 2 minutes on google shows we’re 40% cheaper than average USA prices – or am I missing some giant leap of logic?
I’m all for people exposing high prices and stuff, but they should really use facts to fight the war, not make up sensationalist things to get attention and destroy all their credibility so nobody takes any notice of them anymore – kind of reminds me of the endless streams of meaningless “bandwidth in XYZ country is 100 times cheaper than za” articles on myadsl.
Mike’s argument covers the proposed price increases. Even if the SA’s electricity is now 40 % cheaper than the USA’s tariffs (and I think they are now the most expensive) the gap will shrink to only 13 % cheaper after the first round of increases. The second round of increases will definitely ensure us a world first – to be followed by the third round of increases.
Mike’s main argument is that SA should have cheap electricity in line with our cheaper access to coal. Why is this not so?
@Jan: No, the article quite plainly says it’s more expensive at this point in time. USA has quite low electricity prices in global terms, but analysts, or in this case a so-called “economist” just love to compare ZA prices with US prices to make a point for some reason. Just as a matter of interest, I did a quick check, and both Mexico and Israel’s electricity is more expensive that ours.
Yes, electricity is becoming too expensive in ZA, but this doesnt make the base facts of this article any less BS. If the writer had spent 5 quality minutes on google he’d have discovered it, but I feel this is the kind of person that doesn’t let facts get in the way of a sensationalist piece. Even after 3x 45% increases, we’re still cheaper than a lot of places in EU were a few years ago, according to some price charts I found.
The danger of this kind of reporting is that if everyone says “We’re not happy because our electricity is more expensive than US! We won’t be happy until it’s cheaper!”, Eskom can say “oh, but it is” and ignore public pleas for another few years.